Entrepreneurship & Innovation

Richard
Branson Steve Jobs Sergey Brin Sam Walton
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Jeff Bezos J.K. Rowling Elon Musk

Mark Zuckerberg
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YOU!!!!

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 An Austrian economist defined entrepreneurship as
the “competitive behavior that drive the market
process”.

 Thus it creates value for both market and the society

 So lets look at some other definitions of

entrepreneurship and entrepreneurs……………………
 Entrepreneurship is a way of thinking, reasoning and
acting that is opportunity-based. It results in the
creation, enhancement, realization and renewal of
value not just for the owners but for all the
participants and stakeholders.
 Entrepreneurship is the process of creating
something new of value by devoting the necessary
time and effort, assuming the accompanying
financial, psychic and social risks, and receiving the
resulting rewards of monetary and personal
satisfaction and independence.
 In short entrepreneurship comprises of the following
three behavioral components:
 Identification, evaluation and exploitation of an opportunity
 The management of a new or transformed organization to
facilitate the production of new goods and services
 The creation of value through the successful exploitation of
a new idea
An opportunity is a favorable juncture (point in time) of
circumstances with a good chance for success or
progress. It is the job of the entrepreneur to locate new
ideas and to put them into action.

Thus, entrepreneurship may be described

as the identification and exploitation of
previously unexploited opportunities.
An Attractive • Timely Finding the Right
Opportunity • Solvable Opportunity
• Important
• Profitable
• Favorable Context

The
Sweet
Spot
• Like to do the • Skilled at the
tasks needed
tasks
• Like the challenge
• Committed to do
what is necessary
Interests,
Passions,
Commitment Capabilities & Skills
Principle:-

The entrepreneur develops an enterprise with the

purpose of creating wealth and prosperity for all
participants – investors, customers, suppliers,
employees, and themselves – using a combination
of intellectual and entrepreneurial capital.
 Given by Mark Casson in his book The Entrepreneur—
An Economic Theory

 It formalises the role of the entrepreneur as innovator,

risk-taker and judgemental decision-maker, and relates
these functions to the size and growth of the firm.
 The theory of uncertainty bearing theory of profit was
developed by Prof. F.H. Knight

 According to Risk –Bearing theory

1. Entrepreneur earns profits because he undertakes risk
2. The main function of an entrepreneur is to act in anticipation
of future events.
3. Uncertainty-bearing is essential to production; therefore it is
factor of production and the reward for it is a part of normal
cost of production.
4. Profit is a payment for the assumption of risks the
entrepreneur undertake.
 Pioneered by Joseph Alois Schumpeter

 Entrepreneur is a man who sees opportunity for

 Introducing new techniques or commodity
 Improving organization.
 Development resources.
 Entrepreneur embarks upon new combination of factors of
production resulting in new product--termed as innovator.
 Entrepreneur is Dynamic
 The concepts of X-inefficiency were introduced by
Harvey Leibenstein.

 The theory considers entrepreneurship as the outcome

of the combination of internal and external forces:
 Internal forces: Intelligence, Skill, Knowledge, Intuition,
Exposure & experience.
 External forces: Economic, Political, Social & cultural, Legal
frame-work: Stable Govt. External security, law & order
 Israel M. kirzner’s theory of Adjustment stated that
the essential entrepreneurial element is the alertness to
information rather than its possession alone.

 According to him entrepreneur has following

characteristics
 Adjustment of price is the main role of entrepreneur.
 Alertness to disequilibrium.
 Entrepreneurs are unpredictable.
 John H. Kunkal advocated the theory of
entrepreneurship supply.

 The theory contemplated that entrepreneurial talent

can be found in minorities, religious, ethnic, migrated,
displaced elites & these minorities have supplied most
for the entrepreneurism in the society.
 “Personal resourcefulness” is the belief in one’s own
capability for initiating actions directed towards
creation and growth of enterprise. Thus, it emphasize on
initiative rather than reaction.
 Propounded by Thomas Cochran.

 Entrepreneurs are not super normal individual but they

are society’s model personality.

 Performance of entrepreneur influenced by three

factors:
 His own attitude towards his own occupation .
 Operational requirement of job.
 The role expectations held by the sanctioning groups/society.
 According to Carl Menger economic changes do not
arise from the circumstances but from the individual’s
awareness and understanding of the circumstances.

 Entrepreneur transforms the available resources into

useful goods and services.
Theories of Entrepreneurship

Every theorist has looked at the entrepreneur

and entrepreneurship on the basis of his
perception, and therefore ,can at best ,provide
only a limited view of entrepreneurial
phenomenon. No view is right or wrong or more
or less .
Personal characteristics

The need for independence

The environment

Welfare (philanthropic) considerations

The venture

Following role models

Financial Incentive
Redundancy

Threat of unemployment

Disagreement with previous employer

Do you think age, gender, marital status, education
and ethnicity has anything to do with the production
of entrepreneurs?
Age: 35-50, and then 65+
Gender: Men are twice as likely to start a business as
women.
Marital status: being married increases the chances that
an individual will be self employed
Education: there is no clear co-relation between the two
Ethnicity: minorities are among the most entrepreneural
 What does it take to become a entrepreneur?
 Need for achievement
 Need for autonomy or independence
 Locus of control – ability to control their
environment
 Risk taking propensity – different levels of risk
takers
 Self efficacy – belief in their ability to undertake and
accomplish some particular task or activity
 Personal attributes
 Innovative
 Determined
 External focus
 Team leader
 Technical skills
 Product/service knowledge
 Market/industry knowledge
 Entrepreneurial management
 Opportunity identification
 Resource leveraging
 Networking
 Decision-making
 Management competencies
 Marketing
 Finance
 Human relations
Discovery: The stage in which the entrepreneur
generates ideas, recognizes opportunities, and studies
the market

Concept Development: Develop a business plan: a

detailed proposal describing the business idea

Resourcing: The stage in which the entrepreneur

identifies and acquires the financial, human, and
capital resources needed for the venture startup, etc

Actualization: The stage in which the entrepreneur

operates the business and utilizes resources to
achieve its goals/objectives.

Harvesting: The stage in which the entrepreneur

decides on venture’s future growth, development, or
demise
 Start-up business is the hard work without
guaranteed results.
 Starting up a business is like taking part in
amateur boxing match which you don’t know
how other guy is- but unless you get in there
and have a go, you never will
 Lack of objective evaluation
 No real insight into the market
 Inadequate understanding of technical
requirements
 Poor financial understanding
 Lack of venture uniqueness
 Ignorance of legal issues

© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 1. Uniqueness of venture
2. Investment size
3. Growth expectations
4. Product availability
5. Customer availability
6. Pricing strategy
7. Marketing strategy
© 2014 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.
Opportunity to create your Opportunity to make a
own destiny Difference

Opportunity to reach your Opportunity to reap

full potential. extraordinary profits

Societal Responsibility and Opportunity to engage in

Recognition work of their choice
 Risk of losing your
Uncertainty of Income
entire Investment

Lower Quality of Life

Long Hours and Hard
until the business get
Work
established

Complete
High level of stress
Responsibility

Discouragement
Financial risk versus profit (return) motive varies in
entrepreneurs' desire for wealth.

Career risk - loss of employment security

Family and social risk - competing commitments of

work and family

Psychic risk - psychological impact of failure on the

well-being of entrepreneurs
Pathways to Entrepreneurial Ventures
Types of business ventures

1. Creating the 2. Acquiring an

New Venture Existing Venture

Pathways to New
Ventures

3. Obtaining a
Franchise
 3
9

New ventures
New ventures

A business owned and

managed by one
individual; the business
and the owner are one
and the same in the
eyes of the law
 Advantages Disadvantages

• Retention of all • Incurs all losses

profits.
• Unlimited liability.
• Ease of formation.
• Financing limitations.
• Complete control.
• Limited skills and abilities.
• Lower taxes.
• Lack of continuity of
• Easy to discontinue business

41 New ventures (cont.)

 Partnership

An association of two or
more people who co-own
a business for the
purpose of making a
profit

42 New ventures (cont.)

 New ventures (cont.)

 General Partnerships
 All partners have unlimited liability.
 Limited Partnerships
 Some partners have personal liability that is limited to the
cash or property they invested in the firm.
 One or more general partners who actively manage the
business, receive a salary, share in profits and losses, have
unlimited liability.
 Personal earnings received from the partnership are subject to
personal income taxes.
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 Disadvantages

Advantages • Control is shared.

• Unlimited liability (at least for
• Funding. one partner).
• Losses are shared. • Shared profits.
• Specialization. • Potential for personality and
authority conflicts

New ventures (cont.)

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Corporation

A separate legal entity apart

from its owners which
receives the right to exist
from the state in which it is
incorporated

New ventures (cont.)

Privately Held
Ownership is restricted to small group of investors.
Stock is not traded publicly.

Publicly Held
Larger corporations.
Stock is traded publicly.
Act of initially issuing stock: “going public.”
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 New ventures (cont.)

Advantages Disadvantages

• Limited liability. • May be costly to

• Access to funds. establish.
• Transfer of • Financial disclosure.
ownership. • Tax disadvantage.

47
Acquisition of an Established
Business Venture
 Acquisition of an Established
Business Venture

 Buying an established business rather than setting

up a new business has many advantages but is not
without risk. You will need to know the advantages
and disadvantages of buying an existing business
and be clear about your ability to run a business.
Acquisition of an Established Business
Venture (cont.)
Advantages
 The difficult start-up work has already been done. The
business should have plans and procedures in place.
 Buying an established business means immediate cash flow.
 The business will have a financial history, which gives you an
idea of what to expect and can make it easier to secure loans
and attract investors.
 You will acquire existing customers, contacts, goodwill,
suppliers, staff, plant, equipment and stock.
 A market for your product or service is already established.
 Existing employees and managers will have experience they
can share.
Acquisition of an Established Business
Venture (cont.)
Disadvantages
 The business might need major improvements to old plant and
equipment.
 You often need to invest a large amount up front, and will also
have to budget for professional fees for solicitors and
accountants.
 The business may be poorly located or badly managed, with
low staff morale.
 External factors, such as increasing competition or a declining
industry, can affect future growth.
 The seller's personality and their established relationships may
be a major factor for the success of the business.
 Franchising
 Franchising
 Any arrangement in
which the owner of a
trademark, trade name,
or copyright has licensed
others to use it in selling
goods or services.
 Franchisee
 A purchaser of a franchise
 Franchisor
 The seller of the franchise
Franchising (cont.)

Types of Franchising
 Distributorship
▪ Dealer sells products produced by a manufacturer.
▪ Example: Car dealers.
 Chain-Style Business
▪ Firm uses trade name of a company and follows guidelines.
▪ Example: McDonalds.
 Manufacturing Arrangement
▪ Firm manufactures a product using a formula from another
company.
▪ Example: Microsoft.
 Franchising (cont.)

 Advantages  Disadvantages
 Proven management style  Sharing of profits.
 Name recognition.  Less control.
 Financial support.  Start-up costs.
 Lower failure rate.  Unfulfilled promises of franchisor
Initial Capital Investment: RM1.5million (Outlet in
Malaysia) / USD1 million (Outlet outside Malaysia)
Royalty: 5% monthly for 5 years

Franchise Fee: RM15,000 – RM30,000

Initial Capital Investment: RM100,000 – RM165,000
Royalty: 5% monthly gross sales

Franchise Fee: RM120,000

Initial Capital Investment: RM800,000 – RM1,000,000
Royalty: 5% of gross profit
Advertising: 3% of gross sale
Franchise Fee: USD300,000
Initial Capital Investment: USD1.5 – USD3.0 million
Royalty: 5% monthly gross revenue

Franchise Fee: RM80,000

Initial Capital Investment: RM700,00 – RM1,000,000
Royalty: 5% monthly gross sales

Franchise Fee: USD20,000 – 30,000

Initial Capital Investment: USD280,000 – 490,000
Royalty: N/A
 Entrepreneurship can be defined as an activity
which involves the process of discovery and
exploitation of a new opportunity…
(Scott Shane, 2003)

 Entrepreneurship is the process of designing,

launching and running a new business, which is
often initially a small business.

https://en.wikipedia.org/wiki/Entrepreneurship
Define the term small business
 Quantitative definitions
 Numerical parameters to differentiate between
smaller and larger businesses
 It can affect the eligibility of a business for certain
types of grants or assistance
 These definitions are simple to apply
 These measures may differ across industries
 Non- quantitative measures
 It may be difficult to define small business precisely on
paper, but more easy to recognize once they are in
operation
 A committee of inquiry on small firms set up by the UK
government came up with three important
characteristics
▪ A small firm is managed by its owner(s)in a personalized way
▪ It has a relatively small share of the market in economic terms
▪ It is independent in the sense that it does not form part of a
larger enterprise and its ownership is relatively free from
outside control in its principal decisions
 These criterion are subject to a lot of critisizm
 Low market share may not be a criteria as
firms can operate in highly niche segments or
limited geographic markets
 Economies of scale
 Research and development on new products
 Trade barriers
 Growth of the service sector
 Information technology
 Flexible specialization and networks
 Subcontracting
 Unemployment, redundancy and golden
handshakes
 It is a turbulent sector with huge movements
in and out
 Innovators of new products
 The breeding ground for new industries
 The seedbed from which tomorrow’s large
companies will grow